Downsizing: older people ‘have unrealistic expectations’ about income from moving to a smaller property

Downsizing: older people ‘have unrealistic expectations’ about income from moving to a smaller property

Older homeowners may be expecting more money from downsizing than they’ll actually get.

Love Money reports that it seems that older people ‘have unrealistic expectations’ of how much income downsizing will bring them. More and more older homeowners are looking to downsize in order to release some of the money in their home, according to new research by equity release firm Key Partnerships. However, many will be disappointed by how much money they actually release.

A lack of suitable houses for downsizers to move into means that prices are rising and the amount of cash they will end up with is shrinking. The survey of estate agents found that 66% had seen a rise in downsizing enquiries over the past year. However, 72% of agents said that older homeowners have “unrealistic expectations of the money they can make.” “Downsizing is attractive for millions of older homeowners as part of retirement planning as it appears to promise tax-free cash and is clearly driving increased enquiries for estate agents,” says Will Hale, director at Key Partnerships.

Why do homeowners downsize?

Downsizing can be appealing in retirement as the hope is by selling your large family home and moving somewhere smaller and cheaper you will free up cash from your property to help fund your retirement or allow you to live mortgage-free. The problem is many people are having the same idea. This means a growing number of buyers are fighting over the same type of properties, pushing up prices.

Key Retirement’s research found that the prices of bungalows, retirement homes and houses suitable for the less mobile are all being pushed up by a lack of supply. Over half of the estate agents surveyed said that there is a lack of suitable retirement properties in their area. Factor in the cost of moving – Stamp Duty, solicitor’s fees, removal costs – and the amount of money you are left with after you downsize could be a lot less than you expected.

“Older homeowners are struggling to achieve their financial objectives with the combination of rising prices and a lack of supply meaning that downsizing simply does not add up for clients,” says Hale. “Hoping to live off the value of your home could be a ‘downsizing delusion’ for millions of people,” says Steve Webb, director of policy at Royal London. “In most of Britain, the amount of money you could free up by trading down at retirement to a smaller property would generate a very modest income. “Even with today’s record house prices, very few people could fund a retirement by selling up and moving to a smaller property.”